By Martin Weissbart

With the PE market bottoming out in H1 2024, the outlook for H2 2024 and beyond appears more promising. In this update, the latest in our bi-annual series on the DACH PE sector, we assess the impact of the challenges and look at future growth opportunities.

With more than 400 active private equity (PE) funds and 379 transactions in 2023, the DACH region (Germany, Austria, Switzerland) is one of the key centers for private capital deployment in Europe. In terms of total transaction volume, it currently ranks second behind only the UK and Ireland.

Much like the rest of the continent, the PE sector in the DACH region has endured a decline of late. In 2023, PE transactions decreased by around 24% across Europe as a whole, with the DACH region also registering a 23% drop. The primary reason for the general decline has been the difficulties with debt financing.

2024 off to a weak start

With macroeconomic disruptions persisting, the first half of 2024 has continued in similar fashion: there were 143 transactions in the DACH region, which is the lowest half-year period since 2014. Buy-side investors are still hesitant to invest as multiples remain high and interest rates uncertain, indicating deal volume for 2024 may show another decline after 2023.

Tech and business services key for deals

Technology, software & digital solutions and business services & logistics were the main sources of deals in 2023, with the two sectors accounting for more than 50% of deals in the DACH region.

From 2022 to 2023, all sectors experienced declines apart from automotive and energy & utilities, with building & construction being the most affected. The strongest long-term growth was seen in technology, software & digital.

Outlook for H2 2024 and beyond

The PE market may have bottomed out in H1 2024 and there are signs of optimism for H2 2024 and beyond. The cautious mood has led to PE firms in the DACH region accumulating ‘dry powder’ or more than EUR 100 billion, ready to be deployed.

We have identified five key takeaways to help firms in the DACH PE sector prepare for a shift in momentum.

1. Stagnation in mid-cap and large-cap investments is set to remain into the end of the year and beyond, but small caps look more resilient.
2. Continuation funds are enabling PE firms to extend investment periods. Meanwhile, refinancing activities are expected to become more popular to mitigate continued high interest rates.
3. PE firms will increasingly focus on closer engagement with assets, sometimes resulting in early screening for auctions or exclusive negotiations, especially for the limited number of high-quality assets in the market.
4. Corporate carve-outs are becoming an increasingly attractive channel for attractive assets. Establishing these businesses as standalone entities with dedicated management and revised strategies can unlock growth opportunities often overlooked within larger enterprises.
5. The continued stagnation in the large-cap and mid-cap segments is likely to see continued pricing mismatch between the buy and sell sides.

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